The Internet of Things (IoT, for short) may seem like just another tech craze, but the implications and applications of this technology will shape how our world looks in the future. For those of you who don’t know what IoT is, the Internet of Things is the new movement/trend towards all devices being internet or sensor-enabled and, eventually, “talking” to each other. A wearable tech device such as the Jawbone or Fitbit is an IoT technology. Basically any device that can collect and send data (and even respond to data!) is part of the IoT.
There are so many areas that will benefit from better data collection—from your personal health and fitness to management of city waste and understanding of environmental phenomena. There are, of course, concerns with the implications of connecting everything, but the benefits that IoT could provide far outweigh qualms about, say, data sovereignty.
For now, we can divide IoT into 3 different sectors for clarity’s sake. First, the connected home—devices in your home and even car that talk to each other, improve efficiency, and anticipate your needs. Examples include the Nest smart thermostat or Dropcam Wi-fi enabled security cameras. Other services allow remote control of home water, analysis of energy usage (both water and A/C related), and Apple’s developer tools (HomeKit) to give people the ability to connect things they want to in their homes.
Second, there is the wearable & human focused IoT sector. These devices focus more on the person than a building/small ecosystem. (Although, arguably your body is a small ecosystem so the premise is similar, but this is a cyclical analogy I don’t want to explore…) So, devices like the Jawbone UP, Fitbit, and the Apple watch are wearables. This market is pretty oversaturated right now, because most people are not going to want to wear even 4 or 5 different wearables. Wearables are the hot market right now, and many companies/products will die off before any stability in the market beings (and cries of “it’s a bubble!” stop).
Advantages to having wearables are similar to the advantages of any “big data” or data analysis—you gain more insights into how things work and how to implement changes. Understanding how your movement and sleep patterns work can help individuals change them. Wearables aren’t that new of a concept, it’s just that they’ve gotten smarter. After all, remember the Nike+ running tracker? It wasn’t as smart as the wearables today are, but was an early predecessor to personal analytics.
The third, and most interesting, application for the IoT is in cities and outdoor spaces. A lot of waste and inefficiencies occur in urban systems, and open-source data is a great way to solve these issues. How can cities better manage storm water? How can scientists, fisherman, and hobbyists gain real-time insight into sea levels globally? How can new technologies help to bridge the gap between the over-quantified indoors and the relatively pure outdoors? There is so much potential (I cannot emphasize enough) in this market. A few IoT technologies already exist in this space, including smart trash cans (BigBelly) and smart park benches by Soofa (disclaimer, I work there).
IoT technology, and mostly, connected cities technology present a lot of interesting thoughts on how competition and the general economics of this space will look. The internet of things actually provides some excellent examples of rarely-seen economic concepts, which I’ll leap right into.
1. First-mover advantage: Many IoT technologies will be in areas where there is only truly room for one or two major brands/versions of products. Whether this be the fitness band you wear on your wrist or system to manage home efficiency, the first companies to enter a given space will (and do) have a strong advantage. In economics, first-mover advantage refers to (you guessed it!) the advantage the first party to enter an industry or sector might have. When a stone is thrown into a still pond, its ripples will be large, but once 2-3 more stones have been thrown in, it will take a boulder to create any change in the waves (boulder referring to a massive technological innovation or new company in this oddly Zen analogy).
Notably, the first-mover advantage also can make companies more unwilling to work together to create standardized data storage and open-source everything. When the advantage is being first and having things your way, but the industry is a rapidly-evolving and highly competitive one, there is little incentive to design your business in a framework that makes it more compatible with other companies. You want the customer to use your way, and your way only.
2. Path dependence: Path dependence is an idea similar to first-mover advantage—the ways beginning major players do things in an industry can and will create a virtually unavoidable way of doing things. Think about the keyboard on a computer. The order of keys on it doesn’t make that much sense, but changing it would require such an extreme amount of effort that there’s almost no chance it’ll happen. Once people started to learn to use computers that way, there was no turning back. This is fortunate for first movers and unfortunate for different, but better, technologies. Once a certain vision of how future technologies will look has been established, it’s quite different for designers and innovators to go beyond that vision and create something unique. Of course, it happens, but it’s much more difficult to envision so-called “disrupting” technologies or forms of technology when the field already seems to be trending towards a certain type of wearable (wrist), for example. Who decided this would be the best place/form for a personal wearable device? (Not saying it isn’t, just that once we establish a general trajectory for an industry it’s very difficult to look beyond that.)
3. Natural monopolies (/lock-in): Natural monopolies typically occur in industries where up-front costs are extremely high and the field requires a great deal of infrastructure that leads to major economies of scale. Enough jargon, think about any utilities company. Creating the infrastructure to convey your utility (pipes, wires, phone line) costs an immense amount of money, but once it’s done, the cost of adding another customer onto the grid is extremely minimal. It would be nearly impossible for another company to enter the industry and set up the infrastructure to compete. Sprawling, often-underrated systems like utilities and transportation are often natural monopolies.
IoT’s first mover advantage also ties into the fact that in cities and urban spaces, the internet of things might be a natural monopoly situation. Once you have selected a company and installed a network of smart bulbs in city streetlights, there is very little chance for a new vendor to enter the market in that city. Same goes for smart utilities, public transit, and other infrastructure projects. The monetary and time costs of on-boarding a new IoT technology are large. This means that as an IoT brand, once you’re in, you’re in.
This “install once, then you’re pretty much done” kind of market gives companies a lot of money whenever they get new installation, with abilities to market the data/capabilities of their existing infrastructure afterward. If a company can create a sustainable model for generating income off their network once they are installed, they will then have a great deal of free money than can be directed towards innovation and focusing on new applications of the product / industry. This is somewhat similar to how Google makes so much money off of their search business (namely, companies and advertisers paying them) that they can pour money into GoogleX and new projects/acquisitions that may or may not pan out. If an IoT company has its product installed and begins selling their data to interested actors, they have a steady stream of income requiring little maintenance. All this extra $$ is excellent for R&D and making even cooler technology.
The natural monopoly aspects of this field are really interesting, as it gives companies much more flexibility to innovate further than we might traditionally see. It could also lead to the market being dominated by existing large corporations, but hopefully nimbler, younger, startups are able to triumph for the sake of diversity. IoT technology is so cool because a really small intervention (placement of a tiny, cheap sensor) can be invented by a startup and really revolutionize a given aspect of life. Startups can often make change much more easily than interventions by a large company (cough, Cisco). There are probably a ton of other ways the IoT sphere emulates economic concepts, so stay tuned for more thoughts on this topic!